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p. 24 of 54 BACK | NEXT I. Developing Asia and the World - Economic Developments and Prospects II. Economic Trends and Prospects in Developing Asia Newly Industrialized Economies Central Asian Republics, Azerbaijan, and Mongolia People’s Republic of China Southeast Asia Cambodia Indonesia Lao People’s Democratic Republic Malaysia Myanmar Philippines Thailand Viet Nam South Asia The Pacific III. Asia's Globalization Challenge

Asian Development Outlook 2001 : II. Economic Trends and Prospects in Developing Asia : Southeast Asia

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Myanmar

In 2000, the economy sustained the double-digit growth rate of 1999. This was underpinned by strong agricultural performance due to good weather and the expansion of the area under cultivation. To fully exploit the economy’s potential, the Government needs to address certain critical structural and policy issues.

Recent Trends and Prospects

According to official estimates, GDP grew by about 11 percent in 1999. On the basis of preliminary estimates, this growth performance was maintained during the first three quarters of 2000. Real growth in the agriculture sector is estimated to have exceeded 11 percent in 1999 as a result of good weather and expansion of the area under cultivation. Agriculture sector performance remains the most important factor in GDP growth and socioeconomic development. Real growth in manufacturing is reported to have been about 15 percent in 1999.

Inflation was high in the mid-1990s, largely because of rising food prices and excess liquidity; it has since subsided. In 1999, it stood at 11.4 percent and is estimated to have declined further in 2000.

Official data indicate that, in 1997, there were about 22.5 million persons in the labor force and 14.2 million persons employed, out of a total population of 47.2 million. This yielded an unemployment rate of 4.1 percent that year, which some economists have suggested is an underestimate. The employment structure reflects agriculture’s predominance in the economy, with 56.5 percent of total employment.

The consolidated budget comprises the union government, state enterprises, and cantonment development committee budgets. On the revenue side, union government budget revenues as a proportion of GDP declined from 7.2 percent in 1998 to 4.9 percent in 1999. The decline is attributable to a narrow tax base, significant undervaluation of imports, and a large number of tax exemptions. Public expenditures declined from 6.9 percent of GDP in 1998 to 5.8 percent in 1999. Current and capital expenditures accounted for 46.3 percent and 53.7 percent, respectively, of union government budget expenditures in 1999. The fiscal balance moved from a surplus of MK4.5 billion in 1998 to a substantial deficit of MK20.2 billion in 1999.

One major source of the budget deficit has been financing for loss-incurring state-owned enterprises. Subsidies for some commodities, including rice, fuel, and services such as transport for state employees, have been another. For example, the subsidized selling price of rice is estimated to be only about 15 percent of the state procurement price. The public sector deficit has been financed mainly by the issuance of treasury bills and bonds.

Monetization of the economy is still at a relatively low level with total liquidity at around 30–40 percent of GDP. Money supply has been increasing by 30–40 percent a year in recent years, the same rate as domestic credit. The share of currency in broad money has been decreasing. Since the central bank started granting banking licenses to the private sector in 1995, private banks have grown rapidly and now account for more than 60 percent of total banking sector deposits. Credit outstanding to the private sector expanded significantly throughout the 1990s and now accounts for more than 30 percent of total domestic credit. Real interest rates have been negative with the central bank lowering its discount rate from 15 to 12 percent in April 1999 and further to 10 percent in April 2000, to encourage investment and to minimize the impact of high interest rates on inflation. Despite the interest rate reduction, the volume of deposits continued to expand in 1999. Foreign currency deposits have increased in recent years and, at the market exchange rate, account for almost 30 percent of total liquidity.

According to official figures, total imports amounted to $2.4 billion in 1999, comprising about 40 percent capital goods, about 17 percent intermediate goods, and the remainder consumer goods. The Government has recently adopted several measures to further clamp down on nonessential imports to bring down the trade deficit. Total exports stood at $1.1 billion in 1999, consisting mainly of primary products but with an increasing share of garments and agro-based manufactured goods. Border trade with neighboring countries accounts for nearly 30 percent of total exports but only about 10 percent of total imports. While the trade deficit amounted to $1.3 billion in 1999, the current account registered a smaller deficit of $494 million because of surpluses on the services account and transfers. After adjusting for capital account transfers, Myanmar posted a net balance-of-payments deficit of about $145 million in 1999. At the end of March 2000, gross foreign exchange reserves were reported at about $240 million or 1.6 months of imports, reflecting the fragile state of the external balances.

The foreign exchange market remains highly distorted, with the parallel market rate of MK460 per dollar cash, as compared with the official rate of about MK6 per dollar. Trade in the state sector, still recorded at the official exchange rate, is reported to account for about 30 percent of total trade.

At the end of March 2000, total debt outstanding was reported at about $6 billion, almost all as medium- and long-term debt. At that time, the economy had arrears totaling about $2 billion, of which about 70 percent was owed to bilateral sources, about 20 percent to private creditors (including suppliers’ credit), and the rest to multilateral sources.

After quite a successful period of growth following the initial liberalization of the economy in 1988, progress has slowed because of ongoing structural and policy distortions as well as resource and technology constraints. Unless more comprehensive and consistent structural reforms are undertaken and additional domestic and external resources are mobilized, economic growth will remain sluggish and vulnerable to exogenous factors such as the weather, the regional economic environment, and fluctuations in global commodity prices.

Issues in Economic Management

To fully exploit the potential of the economy, the Government needs to tackle certain critical structural and policy issues. First, investment and savings ratios, which are around 12–13 percent of GDP, need to be lifted. Second, the budget deficit has to be reduced, but not by further lowering the already very low levels of public expenditure. Instead, the tax-to-GDP ratio, currently among the lowest in any developing economy, needs to be raised. Third, exports need to be promoted and, in this context, it may be important to abolish the public sector monopoly on rice exports. Fourth, the policy of multiple and widely divergent foreign exchange rates has to be given up and unification of the exchange rate implemented as soon as possible. This will remove both an existing distortion in resource allocation and a strong disincentive to investment. Lastly, the banking sector needs to be further strengthened, including the supervisory and regulatory capacities of the central bank.

Policy and Development Issues

Myanmar currently ranks number 125 out of 174 countries in the United Nations Development Programme’s Human Development Index of 2000, slightly above Cambodia and the Lao PDR. All three are at the lower end of the group of countries considered to have “medium human development”. The country’s social indicators have improved over the last few decades and frequently reveal better social conditions than expected given the per capita income. According to official statistics, the poverty incidence is 23 percent, quite low in comparison with other countries at similar levels of per capita income. While cases of severe poverty are reported in the border regions, the incidence of poverty has a fairly low gender and regional bias. Life expectancy was around 60 years in 1997/98. According to statistics consolidated by the Department of Labor, the infant mortality rate is about 48 per 1,000 live births and the maternal mortality ratio is about 150 per 100,000 live births. These figures are lower than indicated in reports from major international organizations. Accessibility to health services needs to be improved as only about 50 percent of villages have health centers. Although adult literacy is high at around 90 percent and the gross primary school enrollment rate is also around 90 percent, the primary school completion rate is only about 50 percent while the gross enrollment ratio at middle school is less than 40 percent.

The most urgent challenge facing the Government is to achieve rapid economic growth to reduce poverty. If it can initiate a program of policy reform measures and external aid agencies can provide assistance, the economy has the potential to maintain broad-based growth.

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